TCC Case On Adjudicator's Jurisdiction To Consider Cross-claim, And Relevance Of Party's Intentions When Issuing Payment Notices

• Published date: 29 September 2021
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Trials & Appeals & Compensation, Construction & Planning
• Law Firm: Shepherd and Wedderburn LLP
• Author: Ms Leigh Herd

The Technology and Construction Court in Downs Road Development LLP v Laxmanbhai Construction (UK) Ltd [2021] EWHC 2441 (TCC) held that an Adjudicator's decision not to consider a line of defence was a breach of natural justice and was not enforceable, nor could part of the decision be severed. The case also contained interesting commentary as to the 'intent' behind the issuing of a payment notice, and how this may affect the validity of the notice.

Background

Downs Road Development LLP (the Employer) employed Laxmanbhai Construction (UK) Ltd (the Contractor) in connection with the demolition of buildings and development of land under an amended form of the standard JCT Design and Build Contract (the Contract). Under the Contract, a periodic payment scheme applied requiring the Contractor to make interim applications for payment. A dispute arose concerning the correct sum due under interim application 34. In response to the Contractor's application 34, the Employer issued a Payment Notice 34 on 3 March 2021, assessing a net payment due of '0.97. This was followed six days later by Payment Notice 34a, which assessed a net payment of '657,218.50.

Adjudication

The Contractor referred the matter to adjudication for a determination of the correct sum due. The Employer submitted a cross-claim alleging losses suffered resulting from breaches of contract, including the non-provision of a warranty and defects in the design and build of a capping beam.

The Adjudicator determined the sum due under interim payment application 34, but held that he did not have jurisdiction to consider the cross-claim.

Technology and Construction Court (TCC) action

The Employer raised a claim at the TCC seeking a declaration that the Adjudicator's failure to address the cross-claim was a breach of natural justice and that the Adjudicator's decision was unenforceable as a whole, resulting in there being no payment due by the Employer to the Contractor. However, unusually, the Employer also sought to sever and rely on the Adjudicator's decision as to the gross valuation due to the Contractor, before taking account of any cross-claim. It argued that the parties should still be bound by the Adjudicator's assessment of the gross valuation, as this was a "distinct" issue from the cross claim, and could still remain, notwithstanding the Adjudicator's failure to consider the cross-claim.

The TCC held:

• Payment Notice 34 was invalid because it did not accurately state the sum the Employer...